Global Composite PMIs Slow

The S&P composite PMI indexes that combine the services and manufacturing sectors in July show conditions deteriorating month-to-month in all but six of the 22 entries in the table. Doing better on the month in terms of their composite PMI reading are Russia, the UAE, Singapore, Ghana, Egypt, and Nigeria. Large industrial economies are not on this list.

In July, six countries showed month-to-month improvement. In June, seven improved. In May, 12 of the 22 entries in the table showed improvement month-to-month. Clearly there has been a deterioration in the last two months.

Over three months, nine countries show improvement compared to their six-month averages. And over six months, 10 countries show improvement compared to their 12-month averages. Over 12 months, 13 show improvement compared to their year-ago 12-month average. These broader averages also show weakening in progress.

The queue standing statistic positions the current composite PMI readings in a queue of values over the last four and a half years. Expressed in this way, only 7 of the entries in the table have PMI queue standings above the value of 50% which marks their median for this period. The relatively strongest readings are in Singapore, with a 96-percentile standing, in Hong Kong with an 88.9 percentile standing, Brazil with an 88.9 percentile standing, as well as India with an 85.2 percentile standing. However, there are a number of countries with percentile standings in the lower 15-percentile of their queue of values or less. These weak entries include the United States, the European Monetary Union, Germany, Italy, Ghana, Egypt, and Kenya. This disparate group includes some quite small developing economies as well as very large well developed economic entities.

There is in this report both a sense of a relative weakening and absolute weakness. Looking at some of the PMI average values for the U.S., U.K., EMU and Japan, a composite average PMI unweighted average fell to 49.8 in July from 53.4 in May and compares to an average of 53.8 over 12 months. The BRIC group, excluding Russia, shows an improvement in July to 55.3 from 51.7 in May and compares to a 12-month average of 52.1. The average for the full sample of countries falls to 52.3 in July from 54.2 in May and compares to a reading of 53.8 over 12 months. The median falls to 52.2 in July from 54.6 in May and compares to a 12-month average value of 54.5. The average queue standing puts the group's unweighted average at 45.6% while the median standing is at 44.4%. Both of those metrics, of course, reside below 50% which means they're below their historic medians.

These are quite uneven results; the queue standings tell us that these are readings that are extremely weak relative to the historic (4½ year) standings. However, the averages constructed from the PMI diffusion readings show us diffusion metrics of around 52 which imply moderate growth still prevails across the group. Of course, as moderate growth goes, this is considerably weaker growth than what we've seen over the past four and a half years that's the message of the queue standings. A second group of standings based on high-low percentiles that take the current reading and expresses it as a percentile of the highest and lowest reading for the period shows an average percentile standing for the group of 77.9% which is quite a bit stronger. However, these high-low standings, while interesting, are achieved using only three entries the highest the lowest in the current standing while the queue percentile standings use every observation in the period.

The clear conclusion here is that conditions are weakening, and they've become weak by recent standards. There's a growing number of countries showing composite PMIs slowing: There are 17 of these in July, 16 in June, and 12 in May. However, for the 12-month average there are only three of them. In July, there are 7 that report PMIs below 50 indicating contraction; that compares to four in June and four for the 12-month average. These are cautionary statistics. They warn us that conditions are very uneven with some pronounced weakness; the seven observations below a diffusion value of 50 in July is worrisome because of the number and the group's membership: the United States, EMU, Germany, Italy, Ghana, Egypt, and Kenya.

Risk profile
In this environment, we have the same risks operational that have been with us for some time. Some form of COVID continues to spread. The Russia-Ukraine war that was launched in late-February is still going full tilt. Inflation is still high and for the most part still accelerating in the U.S., in the European Monetary Union and in the U.K. However, some of the details in the recent reports are suggestive that prices might be turning lower; we see some of that hinted in global oil prices and other commodity prices. But none of this is to diminish the risk and the fact that central banks are raising rates and may have some significant work yet to do. This is a time of risk for the global economy. However, it's also a test for policymakers that must show that they're up to the challenge of keeping global inflation from getting any further out of hand. If they can succeed at doing this, it will put an end to global weakness eventually. Whether we will have a recession first or not continues to be a matter of debate among economists. And while there are still optimists, right now conditions are looking darker rather than brighter.